Solutions for the Retirement Crisis

One of the key aspects of human efficiency is making decisions based on facts and data rather than ideological thinking. This is a critical part of having an efficient government and political system.

Past and previous retirees have enjoyed a system where everyone benefited from the productivity of companies. This is no longer always the case. And one of the major ways that this is impacting employees is in retirement.

There is almost no question that if we do not do something we will have a retirement crisis. First of all, what exactly are the problems? As Jack Bogle points out, there are three problems: Social Security and its financial status, underfunded pension plans, and poor investment decisions for 401(k)s.

So how bad is the retirement crisis? There is an interesting analysis of this by Ryan Cooper. His observations include the following:

Even though the increasing amount being saved in defined contribution (DC) accounts is about equal to the reduction in defined benefit (DB) accounts (i.e. pensions), the amount in DC accounts are spread unevenly between the rich and the poor with the poor saving little to none. This was not the case so much with pensions.

Predictions indicating the problem will not be that bad are too optimistic, as data has proven out.

So, what should we do to solve this problem? First, since the federal government is in a state of dysfunction, some states have taken on the role of providing state established savings plans as California is doing and thirty other states are looking into. However, Trump and the Republicans in Congress repealed the rule that allowed states to set up such programs and now things are up in the air.

The second thing is to get the Social Security system back on a solid footing. We need to increase or remove the cap on Social security payroll deductions and possibly increase the payroll tax. As far as increasing the retirement age by a small amount, I used to be in favor of this but I would rather see retirees provide a constructive service or start a business than work forever.

The third relates to the problems with funding Medicare and Medicaid. These would both be resolved if we went to a universal coverage, single payer or equivalent healthcare system such as the Canadians and Europeans already have. They spend on average about half as much as we do for much better healthcare systems. It is estimated that if we went to a system such as the Canadians have we would save a staggering $1.3 trillion in healthcare spending annually in the U.S.

The unfortunate conclusion is that people, especially those with low incomes will not have the capability to save enough in a 401(k)-style retirement plan and will end up with little to no money saved for retirement.

As Ryan Cooper points out, this country is wealthy enough to provide everyone over 65 with a decent standard of living. In addition, we have to remember that having a large wealth distribution gap will hurt our whole economy since consumer spending makes up a substantial portion of our GDP which is already stagnant for much the same reason.

The goal of these posts is to provide the fact-based story behind issues that we are facing in this country. We can no longer allow ideology to make decisions for us and hold back our progress when the issues that we have are so easy to solve.